The kingdom will contribute “naval assets to help in pursuing piracy in the region, and this is the only way this can be dealt with,” Saudi Foreign Minister Prince Saud al-Faisal told reporters in Oslo today after meeting with his Norwegian counterpart, Jonas Gahr Stoere. “Negotiations and ransoms only encourage piracy and are not a solution.”

Al-Faisal didn't provide details of the Saudi contribution to the forces in the Gulf of Aden, flanked by Somalia and Yemen and leading to the Suez Canal, where at least 91 merchant vessels have been attacked since January. The Saudi ship is being held for a ransom of $25 million.

In Harardhare, a town in Somalia's semi-autonomous Puntland region close to where the ship is anchored, pirates are bringing in extra fighters to strengthen security, Bile Mohamoud Qabowsade, senior adviser to Puntland President Adde Muse, said in an interview yesterday.

The Sirius Star, which belongs to Saudi Arabia's state-owned shipping line, Vela International Marine Ltd., along with its crew of 25 was seized on Nov. 15 about 420 nautical miles (833 kilometers) off Somalia. It is carrying more than 2 million barrels of crude valued at about $110 million. The ship itself is worth about $148 million new.

The Saudi foreign minister confirmed two days ago that Vela was in talks with the pirates; Vela has declined to comment. A man who identified himself as Abdi Salan, a member of the hijacking gang, said in a telephone interview yesterday that the ship's owners must pay up “soon.” He didn't say what would happen if they didn't.

Military Role

Predicting the outcome of the negotiations, or how much the pirates may receive in the end, is difficult, said Andreas Sohmen-Pao, chief executive officer of BW Shipping Managers Pte, one of the world's largest shipping operators.

“These negotiations tend to take place in private,” he said today in an interview with Bloomberg Television. “This is an opening negotiation and no one knows where it will end up.”

The only long-term solution is for navies to step up their efforts to protect merchant ships, Sohmen-Pao said.

“Merchant ships are not designed or equipped to fend off pirates,” he said. And the alternative of taking the longer route around South Africa's Cape of Good Hope “is complicated.”

The ransom may be the highest sum demanded by pirates from war-torn Somalia, which hasn't had an effective government since the 1991 fall of the Siad Barre regime. They have asked for an average of $1 million per ship this year, according to the London-based research organization Chatham House.

NATO Warships

The North Atlantic Treaty Organization has four warships off Somalia. India, Malaysia and Russia have sent warships, and a European Union fleet is expected to reach the zone next month. The U.S. coalition in Afghanistan has a task force there, bringing the total of warships in the area to 15, according to French military spokesman Christophe Prazuck. The area is almost twice the size of Alaska.

The seizure of the oil tanker may push Western navies to step up their actions against hijackers, who find potential targets with Global Positioning System navigational aids and satellite phones and use captured fishing trawlers to launch attacks out at sea, according to an October report by Chatham House.

NATO is considering changes to its operations in the area, even if it isn't immediately planning to send more ships, Admiral Giampaolo Di Paola, chairman of the alliance's military committee, said at a news conference in Brussels this week.

German Parliamentary Vote

Germany's parliament will vote this month or next on whether to join the EU fleet and Russia is likely to add to its one ship in the area, the Neustrashimy, or Intrepid, a navy spokesman said.

The navies of India, Russia, France, Britain and Germany have all battled pirate vessels in the past 12 days alone.

Military action is “the only solution,” Jens Martin Jensen, interim chief executive officer of Frontline Ltd.'s management unit, the world's biggest owner of supertankers, said in a telephone interview. He called for navies to be given a clearer mandate “of what they can do and what they can't.”

Jean Ping, chairman of the African Union Commission, said yesterday that piracy off the coast of Somalia indicated a further deterioration in the country's political situation.

UN Force

He called in an e-mailed statement for “more sustained and coordinated efforts by the international community to support the peace efforts in Somalia, including the early deployment of United Nations peacekeeping forces.”

The Sirius Star's crew includes citizens of Croatia, the U.K., the Philippines, Poland and Saudi Arabia. Its hijacking, from boarding to the pirates' taking control, took just 16 minutes, Agence France-Presse said yesterday, citing U.K. reports.

The military reports said the tanker was too large and too laden to outmaneuver pirate speedboats, and was poorly defended, according to AFP.

It was the most brazen assault yet in the region, as it was the largest vessel seized worldwide and was the farthest from the coast when attacked.”

Dmitry Rogozin said the view of Russian experts was that naval action alone, even involving a large fleet of a powerful nation, would not be enough to defeat the pirates, given Somalia's geo-strategic position.

“So it is up to NATO, the EU and other major stakeholders to conduct not a sea operation, but in fact a land coastal operation to eradicate the bases of pirates on the ground,” he said.

“Because we all know ... they have their bases on the ground and of course those actions should be coordinated with Russia,” Rogozin said, without making clear whether he foresaw Russia being involved in any such operation.”

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comments:

Why just recognize Puntland, and send in a couple of military advisors in order to straighten up the pirates, and turn them into a regular, standing, army that can be used to fight Islamists?

Further, one could give this new "army" the mandate to patrol the waters, and secure fishing rights to the Puntland people.

The only way to stop the piracy is to make sure that they face higher returns and lower risks from other activity, and then we should do something to facilitate this activity. Crushing the pirates may help merchants in short run, but will only increase the internal problems in Somalia, and make the people of Puntland ever poorer.

How about this: the US didn't want to act on these pirates just to make a point to the rest of the world that without our action, you're going to have to deal with this BS, and nobody else wants to do that.

I agree with you, Ben. I mean, for Christ's sake, you don't negotiate with these people. You kill them.

I also agree with Anon 12:53. It's obvious we are the only country capable, or willing, to maintain a semblance of a world economic system. Without the U.S., the Saudi Arabia would be a wasteland, because they wouldn't be able to sell their oil.

Talk of a Treasury bubble is completely off-base, and the Saudi's know it.

Pirates off the coast of Somalia have hijacked NINE or so ships and tankers in the last couple of weeks. Hundreds of millions of dollars of economic activity is being obstructed and the lives of the kidnapped sailors are in jeopardy. Negotiating with these bastard pirates only encourages more piracy.

And guess who comes to the rescue? The U.S. and NATO. Without the military might of the U.S. the world be a much scarier place. If people feel like the U.S. is not going to respond with military might, crap like this would be an even more common occurrence.

As much as the people of other countries like to hate us, they will all be forever in our debt as they have benefited from Anglo Saxon success, notions of freedom, and military might. Terrorists and pirates cannot be tolerated. To restore some order, I suggest stopping every ship off the coast of Somalia, and if there are any weapons on the boat, then SINK it WITH the ENTIRE crew.

What just happened was our elected Saudi masters told us to jump to it and we jumped!

In the good old days even private businesses like East Asian Company and Great Northern Telegraph got the resources and the balls to send their own navy when the pirates began to inflict damage to the bottom line. Now we have to get permission from a tribe of desert robbers, who's claim of royalty comes from being first in line when the British were handing out Lee Enfields!

The problem with declining US hegemony is that it's going to hapen through mayhem. The US have half the world's military expenses, do you think they will not use their army to protect their hegemony?

Yes, the US hegemony is declining, and for certain reasons that is good. But the period that lies ahead of us is going to be more than turbulent, and I sincerely hope that the US get a sensible administration after Obama, because that's when the real turbulence will start.

Disclaimer

The Financial Ninja is a collection of my thoughts and opinions about current economic and market conditions. These are not buy and sell recommendations. Use your head and do your own research. This is a forum to stimulate discussion and debate.

About Me

I started trading during the tech bubble when I was still in high school. My trading has financed my education and I have since completed a BA in Economics and an MBA with a concentration in Finance. I have worked as both a proprietary equity and fixed income derivatives trader.